Rolls-Royce Holdings plc presents update on review of operations

By TESTCustomwebLP TESTCustomwebLP
November 24, 2015 23:01

Rolls-Royce has presented the initial findings of Chief Executive Warren East’s review of operations including further details on the actions being taken to improve disclosure and transparency. The review of operations founds clear areas for business improvement for an organization with a complex business model and high embedded costs. One of the findings was that previous disclosure “undermined confidence in the business model in the face of changing markets conditions in several businesses”. Going forward, the company hopes that “enhanced disclosure and simplification will help improve transparency while reducing costs and inefficiencies”. Rolls-Royce also announced proposals to increase revenue segmentation, business by business gross margin and trading cash flow analysis, as well as major restructuring to “simplify the organisation, streamline senior management, reduce fixed costs and add greater pace and accountability to decision making”.

These changes will result in incremental gross cost savings of £150-200m per annum, the company estimates, with benefits accruing from 2017 onwards, targeting a 1-2 year payback.

Rolls-Royce maintains that the medium to long-term outlook remains strong. “Strong long-term cash flows will be driven by significant growth in widebody aftermarket, industrial transformation and cost reduction programmes,” the company said.

Warren East, commenting on his review, said: “As a group we are undergoing an unprecedented period of change. Change in our mix of business and how we account for it. Change in our industrial footprint as we invest in a wide-ranging transformation. And change in demand for our products as we double our large engine output and manage reductions in demand in other markets. These changes, while more painful than we expected in the near-term, are vital to our long-term success.”

“My review has underpinned my confidence about the opportunities before us and I am convinced that our long-term outlook is positive. It has also highlighted a number of areas where we can simplify the way we work, inject pace into our decision-making and responsiveness, and improve our operational gearing and operational effectiveness. This is fundamental to ensuring Rolls-Royce best positions itself to compete for the long term opportunities before us.”

Ian Davis, Chairman of Rolls-Royce, added: “As a Board we are committed to providing Warren with the support he needs to implement the findings of his review. He is recommending clear and decisive actions which we fully support and we are committed to ensuring he has the right resources at the highest level to deliver these changes.”